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Editor's Notes: No. 99-35609 IN THE UNITED STATES COURT OF APPEALS AT&T CORP., et al. v. CITY OF PORTLAND, et al., Appellees. On Appeal from the United States District Court BRIEF OF APPELLEE-INTERVENOR ORISPA
*Counsel of Record September 7, 1999 Attorneys for ORISPA CORPORATE DISCLOSURE STATEMENT The Oregon Internet Service Providers Association (“ORISPA”) is a
nonprofit corporation representing more than 40 members who offer internet
access and online services to Oregon residents, including services in the City
of Portland and the County of Multnomah. ORISPA has no parent corporation and no
subsidiaries.
ORISPA will address appellants’ First Amendment and Commerce Clause challenges to the City of Portland’s and County of Multnomah’s requirement that franchisee cable operators permit access to internet service providers on a nondiscriminatory basis.[1] JURISDICTIONAL STATEMENT ORISPA adopts Appellants’ jurisdictional statement. COUNTERSTATEMENT OF THE CASE On September 2, 1998, TCI Cablevision of Oregon, Inc. and TCI of Southern Washington, local subsidiaries of Telecommunications, Inc. now owned by AT&T Corp. (“AT&T”), requested approval of a change in control from TCI to AT&T. S.E.R. 4.[2] During the 120 days within which local franchising authorities must decide whether to approve such a change in control, the Mt. Hood Cable Regulatory Commission (“MHCRC”), a commission established to recommend cable regulatory actions, held three public hearings, inviting the community to comment.[3] After the MHCRC made its recommendation, both the Multnomah County Board and the Portland City Council held additional public hearings to determine whether to approve the change in control. These decisionmakers were concerned whether granting AT&T monopoly control over highspeed cable modem access to the internet would harm consumers. See, e.g., AT&T v. Portland, 43 F. Supp. 2d 1146, 1150 (D.Or. 1999); S.E.R. 97-98, 163, 221, 246. That issue was addressed at each hearing. AT&T representatives spoke at each hearing and provided two written submissions. See, e.g., S.E.R. 74-81, 90-93, 118-29, 132, 147-50, 171-74, 222-24, 246-50. The decisions reached on December 17 by the County Board and the City Council, only 2 weeks before the statutory deadline, were therefore reached after three months of hearings and active solicitation of all views. During the course of these hearings, AT&T confirmed that it intended to provide cable modem internet access, but only through its own affiliate, @Home. S.E.R. 77. Subscribers who wished to reach other internet service providers (“ISPs”) could do so only by first subscribing to @Home and paying @Home’s monthly fee, and then separately subscribing to their preferred ISP at an additional fee. See, e.g., S.E.R. 133, 152, 165. Under AT&T’s plan, however, AT&T and @Home retain maximum control over each subscriber’s internet transmissions because each transmission travels through @Home. By controlling the single internet gateway available to highspeed cable modem subscribers, @Home may control the information subscribers may receive, and the relative speed at which various content is transmitted. The @Home cable modem bottleneck affects the entire range of existing and potential service available through the internet. See, e.g., S.E.R. 153. The MHCRC, the City and the County were also informed that it was technically feasible for AT&T to permit its subscribers to access internet and online service providers on a nondiscriminatory basis. See, e.g., S.E.R. 175, 199, 220. AT&T did not suggest otherwise. And they were informed that AT&T would be reimbursed by ISPs for any additional costs of providing nondiscriminatory access. See, e.g., S.E.R. 175, 249. The central concern of the MHCRC, City and County was the effect of AT&T’s single-ISP plan on consumers. Residents and consumer groups informed the decisionmakers that cable subscribers wanted nondiscriminatory access to ISPs, see, e.g., S.E.R. 133; that subscribers were opposed to permitting AT&T to enjoy a monopoly over cable access to the internet, see, e.g., S.E.R. 257; and that the effects of permitting AT&T to enjoy gatekeeper control would be felt most keenly by those with the least ability to pay, see, e.g., S.E.R. 211. There was testimony that nondiscriminatory access would result in lower prices, more attentive service, and more innovative offerings. See, e.g., S.E.R. 97 (Steve Caldwell, Vice President, Transport Logic); S.E.R. 152 (Richard J. Horswell, Chairman of Europa Communications and President of ORISPA). And there was testimony that cable and telephone companies had used their gatekeeper positions to discriminate against non-commercial entities in the past, see S.E.R. 156-57, and commentary that small, local companies have historically provided services to low-margin groups underserved by large companies, see S.E.R. 206, 230 (Commissioner Diciple-Wedding). There was also testimony that, by merging with TCI, AT&T had become not only the monopoly provider of cable service to the Portland and Multnomah County franchise areas at issue, but also to roughly one-third of the nation’s cable homes, and that cable had a substantial head start on highspeed access to the internet. S.E.R. 115-B.[4] Representatives of internet-related businesses explained that permitting AT&T to enjoy such a monopoly would harm both in-state and out-of-state ISPs, especially smaller ISPs. See, e.g., S.E.R. 174, 200-02, 227, 266. And they explained that the whole spectrum of internet-related businesses would better serve consumers if access to ISPs was nondiscriminatory, see, e.g., S.E.R. 154 (Sam Churchill, web page designer); 153 (Susan Hamill, CEO of One World Internetworking, Inc. and Secretary/Treasurer of ORISPA, explaining that the internet’s rich variety and innovation resulted from its open architecture and would be seriously reduced if AT&T is permitted gatekeeper control). The MHCRC, City and County also heard AT&T’s testimony. AT&T explained that subscribers who wanted an ISP other than @Home had the alternative of connecting to other ISPs through dial-up access using regular telephone lines. See S.E.R. 133, 261-62 (TCI’s Deborah Luppold). AT&T’s affiliate @Home conducted a demonstration that several commissioners attended to show those who had used only dial-up access what cable modem access was like. The demonstration persuaded the commissioners that cable was so much faster that dial-up access would not be able to compete. Commissioner Saunders, for example, reported after attending the demonstration: “It is not only fast, I mean, it zips.” S.E.R. 168. Noting also that cable modem access could provide many services that simply were not available through other access methods, Saunders concluded: “I can see that we’re really worried about a valid thing because this could really take over everything.” Id. Portland’s Office of Cable Communications Director David Olson was also impressed by the cable’s “lightning speed connection to the Internet,” in contrast to telephone access, where the “worldwide web sometimes is seen as the worldwide wait.”S.E.R. 216. AT&T’s Richard Thayer further testified that cable access is faster than any other method available today to access the internet, although he predicted that other technologies could be invented in the future that would be even faster. S.E.R. 259. Having heard the views of their constituents, of AT&T, and of representatives of internet companies, having compared for themselves cable modem and dial-up telephone access to the internet, and applying their regulatory expertise, the MHCRC recommended that the City and County require AT&T to permit subscribers access to the ISP of their choice on a nondiscriminatory basis.Commissioners considered the question a “compelling public service issue.” S.E.R. 206 (Commissioner Diciple-Wedding); see also S.E.R. 221 (Commissioners Thomas, Linn).The recommendation was made to protect citizens in the affected franchise areas, not to protect local companies.S.E.R. 207 (Commissioner Harshman) (“[W]e have to take care of our citizens... We are not here to guarantee the life of internet providers. They are not our constituents. They will live and die in a very competitive atmosphere.”) (emphasis added). The Commissioners considered it poor public policy to limit subscribers to one ISP. S.E.R. 256 (Commissioner Diciple-Wedding). Shortly after its determination, MHCRC explained its action more fully in a submission to the FCC. It said that requiring nondiscriminatory access is consistent with the procompetitive pronouncements of the Communications Act and the federally-encouraged policy of providing for “an open and accessible marketplace in communications and Internet access.” S.E.R. 297-C. It found that nondiscriminatory access would help ensure that “a maximum variety of choices concerning high-speed access to the internet [would] be available to users and citizens of any income level or social status.” S.E.R. 297-H. The MHCRC explained it was concerned with the implications of a society in which some groups are information-rich and others information-poor. S.E.R. 297-I. It expressed concerns that gatekeeper control permits de facto redlining and discrimination in price and availability of services among subscribers. Id. The MHCRC found that cable modem access to the internet is far superior to dial-up access, id., that Digital Subscriber Line (“DSL”) access (provided, when lines are available, along electronically-enhanced copper telephone lines for a special fee) is not available in many residential areas and is expensive, id., and that wireless and other options will not be practical for most people “for at least the next few years and beyond.” S.E.R. 297-L. Further, the MHCRC found cable’s “fat pipe” to be more suitable for carrying “the ever-more-dense internet content (particularly multimedia) that is becoming a necessity (by any objective measure) for adequate access to the internet now and in the immediate future.” Id. The MHCRC concluded that, although there is currently competition among ISPs reached through nondiscriminatory dial-up access, “inaction now may cause vibrant competition and choice to disappear entirely.” S.E.R. 297-M. The MHCRC found that permitting AT&T to obtain a gatekeeper monopoly over cable access to the internet is “anti-competitive,” “self-evidently not in the public interest,” and “contrary to every hard-earned lesson of public telecommunications policy this great nation has learned at least since the 1982 AT&T breakup.” S.E.R. 297-L. Remembering the years of hard-fought efforts to open AT&T’s long distance telephone monopoly to competition in the 1970s and early 1980s, the MHCRC concluded that if it did not act now to open cable access to competition, it would require “all involved levels of government to spend many years in the future trying to ‘retrofit’ open access onto a monopolistic and proprietary broadband Internet platform.” S.E.R. 297-M. The County Board made several small changes to the ordinance proposed by MHCRC and then enacted it. The Portland City Council enacted the same ordinance as the County. The ordinances provide that approval of the change in control to AT&T is subject to the following condition: Non-discriminatory access to cable modem platform. Transferee shall provide, and cause Franchisees to provide, nondiscriminatory access to Franchisees’ cable modem platform for providers of internet and on-line services, whether or not such providers are affiliated with Transferee or Franchisees, unless otherwise required by applicable law. So long as cable modem services are deemed by law to be “cable services,” as provided under Title VI of the Communications Act of 1934, as amended, Transferee and Franchisee shall comply with all requirements regarding such services, including, but not limited to, the inclusion of revenues from cable modem services and access within the gross revenues of Franchisees’ cable franchises, and commercial leased access requirements. S.E.R. 242, 278. AT&T submitted revised agreements to the County and City that did not include the nondiscriminatory access condition. Because AT&T had rejected the County’s and City’s conditional letters of acceptance, the transfer requests were deemed denied. SUMMARY OF ARGUMENT Portland’s nondiscrimination requirement does not suppress freedom of speech or impede interstate commerce. AT&T’s First Amendment claims are foreclosed under Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622, 641 (1994) (Turner I) and Turner Broadcasting System, Inc. v. FCC, 520 U.S. 180 (1997) (Turner II). AT&T’s Commerce Clause claims are not even colorable. 1. The ordinances are not subject to strict scrutiny as “content-based” obligations because they are triggered by AT&T’s provision of highspeed cable internet access, regardless of which ISP (or ISPs) access is provided to, and regardless of the content made available by such ISP(s). Pt.I.A. 2. The ordinances are not subject to strict scrutiny as “compelled speech” because they do not compel AT&T to distribute any speech that AT&T is not already willing to distribute, will not result in AT&T’s being identified with others’ speech, and do not pressure AT&T to respond to or refrain from controversy itself. Pt.I.B. 3. The ordinances do not burden AT&T’s speech rights at all, but if they do, they are subject to intermediate scrutiny under United States v. O’Brien, 391 U.S. 367 (1968), and easily satisfy that standard. Portland’s procompetitive goal is unrelated to speech, and its regulatory judgment is well-founded on longstanding antitrust and communications law principles, is based on an accurate understanding of the issues and reasonable predictions, and is confirmed by other regulatory authorities, industry experts and Wall Street analysts. Pt.I.C. 4.The ordinances are also fully consistent with the Commerce Clause. They do not discriminate against interstate commerce or out-of-state companies; they were intended to create a level playing field for all ISPs, national and local; and they do not threaten “balkanization.” AT&T’s failure to explain in any way how providing nondiscriminatory access from its Portland cable systems would interfere with its ability to provide exclusive access from other systems confirms there is no “balkanization” problem. Pt.II.
“At the heart of the First Amendment lies the principle that each person should decide for himself or herself the ideas and beliefs deserving of expression, consideration, and adherence.” Turner I, 512 U.S. at 641. The nondiscriminatory access requirement the City and County (“Portland”) sought to impose on AT&T is aimed at ensuring that citizens can decide for themselves the ideas and beliefs deserving of consideration, by requiring AT&T to permit nondiscriminatory access to what has been called the most participatory form of mass speech yet developed. Portland’s nondiscrimination requirement does not require AT&T to carry any speech it has not already agreed to carry and does not restrict AT&T’s ability to offer any speech it chooses to its subscribers, through its own ISP service. Portland’s nondiscrimination requirement does not disfavor particular messages or attempt to manipulate public debate. To the contrary, nondiscriminatory access favors all messages and leaves the public debate to the public. AT&T has wholly mischaracterized the Supreme Court’s decision in Turner I in its attempt to justify its efforts to exercise gatekeeper control over the cable pipeline to the internet. In that decision, and the subsequent Turner II, the Court recognized that “promoting the widespread dissemination of information from a multiplicity of sources” and “ensuring public access to a multiplicity of information sources” -- the very interests pursued by Portland -- are government interests “of the highest order.” 520 U.S. at 189-90 (principal opinion); id. at 226 (Breyer, J., concurring). Further, the Court explained that “[t]he First Amendment’s command that government not impede the freedom of speech does not disable the government from taking steps to ensure that private interests not restrict, through physical control of a critical pathway of communication, the free flow of information and ideas.” Turner I, 512 U.S. at 657. Portland’s nondiscrimination requirement is such a step, preventing AT&T from restricting a “critical pathway of communication” between cable subscribers and the internet, from imposing additional costs on subscribers if they want services from its affiliate’s competitors, and from placing its affiliate in a position to control how and whether specific internet sites and services are even available to AT&T’s subscribers. The First Amendment is not offended by such actions. It is enhanced.
AT&T’s argument, raised for the first time on appeal, that Portland’s nondiscrimination requirement is a content-based regulation comes too late, and in any event, misstates both law and fact. Contrary to AT&T’s claims, the ordinances are not triggered by “the content of TCI’s speech,” AT&T Br. at 56, or even by TCI’s selection of @Home as its preferred ISP. The requirement that affiliated and nonaffiliated ISPs be provided access on the same terms, supra p. 9, is triggered by AT&T’s provision of a “cable modem platform for providers of internet and on-line services.” The trigger is therefore not a particular message or even discussion of an entire subject matter; it is the availability of particular technology -- two-way high speed transmission through the cable wire. The nondiscriminatory access requirement “kicks in” regardless of the content carried by @Home and regardless of whether AT&T offers @Home or any other internet services. Thus, AT&T could not avoid the obligation by changing the content of @Home’s speech or choosing to provide a different ISP instead of @Home. Portland’s ordinances do not prefer one set of sources over another, or one set of speakers over another. They impose a requirement that permits all sources and speakers to reach cable subscribers and leaves each subscriber free to choose among them. AT&T’s claim that there is a stronger argument for finding these ordinances content based than could be made for the rules found content neutral in Turner I is exactly backwards. The rules at issue in Turner I required cable operators to carry one group of speakers (local broadcasters), even if they had to displace signals from another group (cable programmers). The legislative history not only made numerous references to the value of the “local” coverage offered by broadcasters, but there was also a significant difference between the two groups of speakers in terms of potential government control. Although the government had considerable discretion to regulate the content of broadcast television, it had virtually no ability to regulate cable programming content. Nonetheless, the Court found the rules content neutral because they were aimed at alleviating the effect of cable’s bottleneck monopoly over programming available to cable subscribers, rather than manipulating the public debate or suppressing unpopular ideas. 512 U.S. at 641-52. Portland’s ordinances are justified by the same government interest in alleviating the effect of cable’s bottleneck monopoly, but raise none of the same potential First Amendment concerns. The nondiscrimination requirement does not reduce AT&T’s ability to speak and does not prevent it from offering any content it prefers; it simply prevents AT&T from imposing @Home on subscribers who would prefer a different ISP. There is no risk that Portland’s ordinances are attempts to influence the content available to the public, because Portland has no greater authority to regulate the content provided by unaffiliated ISPs than it does to regulate the content provided by @Home. Indeed, under governing constitutional and federal law, Portland has virtually no authority to regulate the content of any ISP or online service. Further, nothing in the legislative history suggests that Portland distinguished between the content of @Home and any other ISP. Portland was focused solely on ensuring that cable subscribers had a choice of ISPs, and thereby also encouraging competitive prices, innovative services, and service even to low-margin customers. Thus, it follows a fortiori from Turner I that the Portland ordinances are content neutral. The legislative bodies had no manifest purpose to regulate cable operators because of any particular messages conveyed. 512 U.S. at 645. Cable operators are subject to the requirement “only because they control access to the cable conduit.” Id. “In short, the [nondiscriminatory access] provisions are not designed to favor or disadvantage speech of any particular content. Rather, they are meant to protect [cable subscribers from what Portland] determined to be unfair competition by cable systems.” Id. at 652. Accordingly, Portland’s requirement is not subject to strict scrutiny as a “content-based” obligation. See Jones Intercable of San Diego, Inc., v. Chula Vista, 80 F.3d 320, 325 (9th Cir. 1996). The entity trying to control the “vast platform from which to address and hear from a world-wide audience of millions of viewers”[5] here is AT&T. Portland is trying only to keep the door to that platform open.[6]
Portland’s requirement is also not subject to strict scrutiny as “compelled speech.” The thrust of AT&T’s First Amendment challenge before the district court was that Portland’s ordinances violate the compelled speech doctrine by requiring AT&T to “distribute speech of another provider contrary to [its] freedom of expression.” E.R. 13.[7] That was the only First Amendment claim included in the Complaint. Id. And that was the claim the district court properly analyzed and rejected, because Portland’s nondiscriminatory access requirement is an economic regulation that “does not force plaintiffs to carry any particular speech.” AT&T Corp., 43 F. Supp. 2d at 1154.[8] On appeal, AT&T continues to press its compelled speech claim, although no longer in those terms. AT&T writes instead of interference with its “editorial discretion.” AT&T Br. at 51. The ordinances do not interfere with the content AT&T or its affiliate may offer subscribers. Thus, the only arguable “interference” is the requirement that AT&T distribute speech of non-affiliated ISPs. The district court was entirely correct to reject that compelled speech claim on two separate, and independently sufficient, grounds. First, the compelled speech doctrine is not even implicated because AT&T does not object to the speech itself. AT&T has already agreed to distribute the speech of any ISP to any subscriber, so long as the subscriber first pays for AT&T’s @Home service. AT&T Corp., 43 F. Supp. 2d at 1154; AT&T Br. at 12. Only two years ago, the Supreme Court held that the sine qua non of a compelled speech claim is a political or ideological objection to the message itself. See Glickman v. Wileman Brothers & Elliott, Inc., 521 U.S. 457 (1997). The producers in Wileman Brothers objected to paying for generic advertising when they preferred to spend those dollars on brand-specific advertising, and believed they would be more profitable if they did -- just as AT&T objects to being deprived of a monopoly over ISP services available through cable. In neither case, however, could the speech “be said to engender any crisis of conscience.” Id. at 472. AT&T’s objections to lost monopoly profits, like the producers’ objections to lost profits and forced contributions, “provide no basis for concluding that” the ordinances “constitute[] an abridgment of anybody’s right to speak freely.” Id. at 474. That the ordinances require AT&T to distribute speech to which it does not object, on economic terms it dislikes, does not state a claim under the First Amendment. Second, the compelled speech doctrine is not implicated because AT&T would not be associated with speech provided by unaffiliated ISPs. Cable subscribers would only receive speech from an unaffiliated ISP by separately choosing and contracting with it. Subscribers would be fully aware that their selected provider was responsible for the content it posted, not AT&T. Moreover, subscribers would see their ISPs’ logos on their home pages and online services. AT&T would also remain free to further disassociate itself from speech provided by unaffiliated ISPs with monthly reminders in cable bills. See Pruneyard Shopping Center v. Robins, 447 U.S. 74 (1980). Pruneyard rejected a shopping center owner’s challenge to California’s requirement that it permit others to exercise speech rights within the center, because their views “will not likely be identified with those of the owner.” Id. at 87. That is even more true here, because subscribers would themselves determine the source of any content received, and would therefore know that AT&T is not the source. For this independent reason, AT&T’s compelled speech claim necessarily fails. AT&T’s reference to Miami Herald Publishing Co. v. Tornillo, 418 U.S. 241 (1974), is completely misplaced, as Pruneyard and Turner I made clear. Tornillo invalidated a statute requiring newspapers to carry candidates’ replies to criticism they published. Thus, in Tornillo, the requirement was triggered by the specific message the newspaper published and threatened to “dampen the vigor and limit the variety of public debate by deterring editors from publishing controversial political statements that might trigger the application of the statute.” Pruneyard, 447 U.S. at 88 (quotation omitted). Finding that “[t]hese concerns obviously are not present here,” id., Pruneyard rejected the shopping owner’s attempt to read Tornillo to bar statutes requiring private parties to provide a forum for the speech of others. In Turner I, the Supreme Court ruled that Tornillo did not apply to carriage requirements imposed only on cable operators. TCI’s trade association, the National Cable Television Association (“NCTA”), argued that the rule requiring cable operators to carry a certain number of broadcast channels was “compelled speech” in violation of the First Amendment, relying on Tornillo. 512 U.S. at 653. The Court rejected that argument, finding constitutionally significant differences between the law invalidated in Tornillo and the carriage requirements upheld in Turner -- differences that apply with even greater force to Portland’s nondiscrimination requirement. Tornillo does not foreclose the requirement that cable operators carry broadcast signals, the Court determined, because: 1) that requirement is not triggered by expression of particular viewpoints, and access is not granted “on the ground that the content of broadcast programming will counterbalance the messages of cable operators”; 2) the access provided to broadcasters will not “force cable operators to alter their own messages to respond to the broadcast programming they are required to carry”; 3) there is “little risk that cable viewers would assume that the broadcast stations carried on a cable system convey ideas or messages endorsed by the cable operator”; and 4) the provisions will not cause a cable operator to conclude that the safe course is to avoid controversy. Id. at 655. Providing AT&T’s subscribers with nondiscriminatory access to ISPs is not triggered by expression of “particular viewpoints,” is not imposed in order to “counterbalance” any AT&T message; will not force AT&T to respond to viewpoints expressed by unaffiliated ISPs; will not persuade subscribers that content from ISPs the subscribers have personally chosen conveys messages endorsed by AT&T; and will not cause AT&T to avoid controversy.[9] However badly TCI and NCTA would like to have won this argument before the Supreme Court in Turner, they did not. TCI’s new owner, AT&T, and NCTA cannot distinguish Turner and do not try. The district court correctly rejected AT&T’s compelled speech claim below, and it should be rejected by this Court in its new guise.
Portland’s ordinances do not impose the burdens on speech rights imposed by the carriage requirements reviewed in Turner I. Indeed, they do not impose burdens on speech rights at all. At most, by preventing AT&T from restricting consumer choice of ISPs, the ordinances affect AT&T’s ability to reap monopoly profits from tying sales of cable modem access to sales of @Home’s services. If, however, the ordinances are viewed as burdening speech, they are subject only to intermediate scrutiny because they are content-neutral regulations of conduct. See O’Brien, 391 U.S. at 377. The ordinances readily meet that standard.
Turner I found that the must-carry rules at issue in that case burdened cable operators’ speech because the rules reduced the number of channels operators could use to provide programming of their choice. 512 U.S. at 636-37. Each channel used to carry a broadcaster the operator would prefer not to carry was no longer available to carry programming the operator preferred to carry. That is not the case here. Portland’s nondiscrimination requirement would not affect AT&T’s “programming” selections. It applies only if AT&T has already chosen to provide highspeed cable modem access to an ISP. Since “an unlimited number of ISPs can be accommodated on a single 6 MHz cable channel,”[10] there is no displacement of AT&T’s internet or video offerings. Thus, an unaffiliated ISP may use the designated internet access bandwidth to provide service to AT&T subscribers who choose that ISP, and @Home can use the same bandwidth to provide service to AT&T subscribers who choose @Home. Standard routing and addressing methods, in use for years, can easily deliver the data packets to the correct ISP or subscriber.[11] For the first time on appeal, AT&T and its affiliate @Home hint that nondiscriminatory access imposes a restriction on bandwidth that in some not-spelled-out way might degrade its cable service or force it to drop existing programming. AT&T Br. at 56; @Home Br. at 20. This innuendo comes too late, but is so misleading as to warrant a response. Although the degree of cable modem use in a particular neighborhood can affect the speed at which the data is transmitted, that effect is wholly unrelated to the number or identity of ISPs serving those subscribers. See S.E.R. 358. Numerous users consuming excessive amounts of bandwidth, e.g., by downloading video programming, can affect the service of nearby users in exactly the same way whether all are served by @Home, all by separate ISPs, or some combination. The number of ISPs providing access has no effect whatsoever on this potential problem. yes"> It “is a problem that is caused by the amount of use, not by the number of ISPs.” S.E.R. 370. Thus, even if AT&T permitted subscribers to connect only to @Home, AT&T would face the same potential need to modify its node combining plan (to separate intense users from each other) in neighborhoods with particularly high usage. Id.[12] AT&T’s innuendo that Portland’s nondiscrimination requirement might cause bandwidth problems affecting AT&T’s ISP or cable service is, at best, misleading. Not surprisingly, AT&T raised no such concerns before the MHCRC, the City, the County, or the district court.[13] Thus, AT&T’s editorial discretion is not affected by Portland’s requirement. AT&T remains free to provide the speech of its choice, @Home, to cable subscribers who want it. And AT&T is not required to carry any speech it does not wish to carry, because AT&T has already announced its intention to “carry” the speech of unaffiliated ISPs. AT&T Br. at 12. AT&T’s objection is thus not a speech objection but the economic objection that it prefers to force consumers to subscribe to its affiliate @Home if they want cable access.
Assuming arguendo that intermediate scrutiny is required, it is plainly satisfied here. Under O’Brien, the ordinances must be sustained if they further an important government interest that is unrelated to the suppression of free expression and if they do not unnecessarily burden speech rights in doing so. Turner I, 512 U.S. at 662. There is no dispute as to the importance of Portland’s procompetitive goal, which is unrelated to the suppression of free expression. See supra, pp. 7-9. AT&T did not suggest to Portland, and does not suggest here, that there are “less burdensome” alternatives that would accomplish Portland’s goal as effectively. And Portland’s regulatory choice can certainly be expected to further its goal of providing its citizens with a broad choice of ISPs and other internet-related services through their cable modems, in order to provide them with the benefits of a fully competitive market. That judgment is supported by longstanding economic understandings, antitrust law, and communications law. It is axiomatic that requiring @Home to compete on the basis of its merit as an internet and online service provider, rather than as the only ISP available through the highspeed cable pipe, provides a significant incentive for @Home continually to improve its services and/or lower its prices. The value of competition to consumers is too well-established to rehearse at length here. It is the basis of our federal antitrust laws, state unfair competition laws, and Congress’s 1996 Telecommunications Act. Its relevance to cable-delivered services is patent. “Only one percent of communities are served by more than one cable system,” Turner II, 520 U.S. 197, and AT&T is the monopoly cable provider in its Portland franchise areas. Furthermore, Congress itself had concluded that such monopolies pose particular risks when vertically integrated with other services. See 47 U.S.C. § 521, note; § 548 (imposing procompetitive restrictions on cable operators with respect to cable programmer affiliates). Antitrust law has long prohibited companies with market power over one product or service from leveraging that power by offering that product or service for sale only with another product or service. Such tying is so recognizably dangerous to competition that it is illegal per se; without further proof that a specific tying had anticompetitive effects. See, e.g., Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984). Thus, Portland’s judgment that AT&T should be prevented from using its monopoly over the cable wire and cable modem access to ISPs to sell the services of its affiliated ISP is solidly rooted. Further, Portland’s regulatory choice is consistent with the choices federal authorities have long made with respect to other methods of ISP access. Consent orders and FCC regulations in place since the early 1980s and, more recently, a statute mandate nondiscriminatory access for internet services.[14] Portland knew that the tremendous growth and variety of internet-related services evolved under a regulatory approach that mandated nondiscriminatory access. It reasonably concluded that the same approach to an advanced, highspeed access method would continue to encourage vibrant competition and innovation. Portland is not alone in this view. Canada has mandated nondiscriminatory cable access to ISPs throughout the country. See David Akin, Users have high-speed ISP choice for first time, National Post, Apr. 23, 1999. More recently, Broward County, Florida made the same regulatory choice, see Kathy Chen, Cable Vote Over Open Lines Upsets AT&T Plan, Wall St. J., July 14, 1999, at B7. Furthermore, Portland heard uncontested testimony that nondiscriminatory access was technically feasible, S.E.R. 199, 220, as did the district court, S.E.R. 364, 366, 367, 371. That view is also widely held in the industry.[15] By connecting at the cable operator’s headend, all ISPs could offer the same service qualities described by @Home.[16] Thus, Portland had a sound basis for determining that AT&T’s cable monopoly poses a significant anticompetitive risk to internet service markets and that its regulatory decision would effectively protect its citizens against that risk. It reached that decision only after an investigation open to all. The reasonableness of its decision is confirmed by public commentary and decisions by other regulatory authorities, and by economists, investors, and industry experts. Moreover, AT&T participated at every stage of Portland’s investigation and determination without making any claims or providing any evidence to dispute the testimony of others or to address the concerns expressed by Portland’s decisionmakers. And AT&T has provided no evidence at all in this litigation, much less evidence sufficient to overcome the lenient standard of review to which Portland is entitled. See Turner I, 512 U.S. at 666.
AT&T’s claim that it was not reasonable for Portland to be concerned that AT&T’s monopoly over cable modem access to ISPs could be leveraged to sell @Home is undermined by its other claim, made to both the City Council and the County Board, that it cannot afford to deploy highspeed cable access if it cannot require subscribers to use its affiliate ISP. S.E.R. 224, 249. If @Home attracted subscribers entirely on its merits, rather than as the only ISP accessible on highspeed cable, AT&T would earn the same amount from @Home whether it was the only ISP directly available or one of many. AT&T’s expectation that it can earn more from @Home if its cable access customers have no other choice demonstrates that AT&T itself believes it will wield sufficient market power in the highspeed access market to parlay that power into an unmerited position in the ISP market. Thus, AT&T’s own arguments supported Portland’s prediction that AT&T’s bottleneck control of cable access would permit it to diminish competition in the ISP market. Furthermore, the so-called competition in the highspeed access market AT&T touts exists mostly in a hoped-for future. The only alternative to cable access presented to Portland by AT&T was dial-up access through regular telephone lines, a method Portland’s commissioners personally compared and found wanting. See S.E.R. 133, 168, 216, 261-62.[17] Market experience and AT&T/@Home’s own marketing campaigns, see e.g., infra n. 37, support Portland’s reasoning. Even large ISPs have suffered slower growth rates in communities where cable access is available, but not to them. Transfer Order ¶ 77. Thus, Portland’s conclusion that alternate highspeed access technologies will not afford its citizens the benefits of competition in the foreseeable future is well-founded. S.E.R. 297-L. Cable access offers a “potentially superior technical fit for many households,” as compared to DSL, S.E.R. 297-I, and access technologies other than dial-up and cable are not currently competitive options for its citizens and would not likely be competitive options for some years. S.E.R. 297-I, 297-L.[18] DSL access, when available, generally costs more and delivers less than cable access, in some situations transmitting data at speeds far slower than cable.[19] DSL also suffers from technical limitations that make it more suitable for business applications than residential. S.E.R. 297-I, 297-L./ Other “alternatives,” even when readily available, are expected to have significant limitations. Wireless and satellite technologies, for example, will be slower than cable modems and are susceptible to sight line limitations and interference from weather conditions.[21] Moreover, Portland’s concern that cable access’s current lead on other highspeed access methods was competitively significant, S.E.R. 297-M, is also based on sound reasoning.[22] Switching from one method to another is expensive for consumers. Each method requires specialized, non-interchangeable equipment at a cost of hundreds of dollars.[23] In addition, all methods of highspeed access require substantial technical changes to the configuration of a user’s computer, often necessitating a service visit by the ISP, a burden also likely to discourage consumers from switching. Once AT&T has attracted subscribers to its highspeed cable access service, they would be forced to pay a high upfront cost to change ISPs by switching to a different access method. Portland also could not assume other highspeed access methods would provide its citizens with access to all ISPs, even if other highspeed access methods were available and comparable. These technologies are so new that the applicable regulatory frameworks have not been determined. Portland could safeguard vibrant competition in internet markets for the foreseeable future only by mandating nondiscriminatory access through highspeed cable modems. Like AT&T, those deploying alternative highspeed technologies could attempt to exert bottleneck control by linking their access methods to an affiliated ISP. The regulatory mechanisms to protect the public from such efforts would likely take some time to put in place. By contrast, if consumers may reach any ISP through highspeed cable modems, considerable competitive pressure would be imposed on new entrants offering alternatives to offer them on a nondiscriminatory basis. Thus, Portland’s requirement creates a significant incentive for potential as well as current access providers to maintain vigorous competition in internet services. As Portland reasonably determined, without government action, slow dial-up modems could provide the only access available to the vast majority of ISPs, at least for the foreseeable future -- and the 6000 ISPs now competing for customers, S.E.R. 394, could dwindle to a handful.[24] Portland was told that AT&T’s plan posed a serious risk to the entire spectrum of internet-related services. See, e.g., S.E.R. 153. The reasonableness of that view is confirmed by economists, who have characterized AT&T’s closed access plan as a risk “to the continuing evolution of the Internet, to the core innovation in and the evolution of electronic network-based business, and therefore to the competitive development of the network economy as a whole.”[25] By positioning @Home between subscribers and the internet, AT&T would place @Home in a position “to ‘bias’ Internet access to the advantage of some content over others.”[26] By using collocation, replication and traffic management technologies, @Home could provide some content at far greater speeds than other content, or block certain content altogether.[27] @Home could slow transmissions to and from competitive ISPs. It could slow or block downloading of video that it considered competitive with AT&T’s cable offerings. And it could designate the highest speeds for traffic to and from web sites that paid @Home a fee. Such technology could easily be manipulated for commercial gain. Thus, for example, @Home could contract with one sporting goods company to block the web sites of its competitors -- or, more subtly, to slow the connection between cable access subscribers and those competitors -- in return for a percentage of the sporting goods company’s e-commerce revenues. Noncommercial communications could be designated low priority and therefore take longer to download or send. By marketing its ability to provide faster connections to and from some destinations than others, @Home could reap enormous profits for itself -- at a considerable loss to the public. This concern is far from theoretical. In its 1998 annual report, @Home itself explained that it is already prepared to offer faster service to content providers who agree to share revenues with @Home through collocation and replication technologies.[28] Portland’s nondiscrimination requirement interposes a significant safeguard against such commercial distortion of internet communication because it increases the likelihood that some ISPs will attract customers by offering open, unmanipulated communication with internet destinations. Moreover, competitively available ISPs would also free subscribers to choose alternatives more suited to their needs. @Home, for example, limits subscribers to 5MB of web space, limits access to the site, prohibits subscribers from operating a server, precludes them from using personalized domain names, and makes connecting to corporate LANs difficult (to attract subscribers to its more expensive @Work Service).[29] A competitive ISP aimed at a niche, rather than mass, market could provide the services particular customers need at the same or lower cost than @Home by declining to offer the services those customers do not need. @Home’s bald assertion that no one will invest in deploying cable modem technology if cable operators may not require subscribers to use an affiliated ISP, @Home Br. at 25, is plainly wrong. @Home presents no evidence in support. AT&T does not even make the assertion. And economic theory points in the opposite direction. Competition increases investment and accelerates efforts to offer advancements. If other highspeed technologies are being developed, as AT&T claims, AT&T has no sensible financial choice other than to invest in highspeed cable modem access.[30] @Home has not attempted to draw support from decisions by actual investors and financial advisors, presumably because they provide no support. Microsoft, for example, is sufficiently persuaded that highspeed cable access will be profitable -- even in Canada, which has mandated open cable access -- that it has recently committed to invest $400 million in the deployment of cable access by a major Canadian cable operator. Indeed, @Home itself has partnerships with three Canadian cable companies in the process of deploying cable modem access, for which @Home is developing localized versions of its service.[31] Wall Street does not believe AT&T will cease deploying cable access if nondiscriminatory access is mandated. Merrill-Lynch’s June 7, 1999 Report, for example, concludes that AT&T will invest in cable access to ISPs, even if it must provide access on a nondiscriminatory basis, because AT&T will want to keep its early lead in the highspeed internet access market rather than abandon that lucrative market to alternative technologies.[32] @Home’s suggestion that cable operators would not be able to recover their investments in cable modem technology, @Home Br. at 18, is empty rhetoric. Cable operators can recover their investments, plus anything else the market will bear, from service charges on subscribers who opt for highspeed cable access and nondiscriminatory access charges on ISPs. Under Portland’s ordinances, AT&T would still enjoy a monopoly over cable service and a monopoly over cable modem access to ISPs.[33] Thus, Portland’s skeptical view of AT&T’s threats is entirely reasonable. See, e.g., S.E.R. 246.
The First Amendment does not require an extensive record or legislative findings where the relationship of the legislature’s choice to the overall problem addressed is as clear and as rooted in longstanding consensus as here.[34] In any event, Portland in fact undertook a careful review, with five public hearings, written and oral testimony, and staff evaluations. The MHCRC has explained that the regulation is necessary based on its prediction that the access to ISPs available to most citizens from their homes for a number of years will be cable and dial-up, and that cable is far better able to provide “ever-more-dense Internet content.” S.E.R. 297-L. The MHCRC also explained that history had taught the value to consumers of vigorous competition, and the value of preventing monopolies before they take root. Id. And Portland submitted further evidence to the district court demonstrating that nondiscriminatory access is technically feasible and that a nondiscriminatory access requirement makes sense because DSL and other technologies are unable to guarantee an open competitive market by themselves. S.E.R. 357. None of this evidence was disputed by AT&T. Indeed, AT&T itself provided all the evidence Portland needed reasonably to conclude that a nondiscrimination requirement would further Portland’s interest in ensuring consumer choice and the benefits of vigorous competition in internet markets. AT&T represented, in writing, that it would not permit any of its subscribers to connect directly to the ISP of their choice. S.E.R. 77. An AT&T representative testified that cable modems provide the highest speed access to ISPs that is available today. S.E.R. 259. Another AT&T representative proposed -- at two separate hearings -- that the alternative available to subscribers who wanted an ISP other than AT&T’s affiliate is dial-up access. S.E.R. 133, 261-62. She did not even mention DSL, or any other potential alternative. Finally, AT&T’s affiliate’s demonstration of cable access to commissioners already familiar with dial-up access convinced them these were not comparable services, and therefore dial-up access offered little protection if AT&T were permitted to close cable access to all ISPs except its own. See, e.g., S.E.R.168.[35] AT&T’s assertion that Portland’s legislative record is inadequate is premised on a faulty appreciation of the law as well as the facts. Legislatures are not agencies; they are not required to hold hearings and explain their reasoning. See Turner I, 512 U.S. at 666. Further, courts may not reweigh the evidence before the legislature or replace its factual predictions with their own. Id. In explaining that it would not second-guess Portland’s findings because those “findings are entitled to deference,” AT&T Corp., 43 F. Supp. 2d at 1152, the court below was following Turner and a long line of governing precedents -- not shirking its judicial obligations to perform that deferential review, as AT&T mischaracterizes. See, e.g., City of Renton, 475 U.S. at 52 (“It is not our function to question the city’s wisdom. . . . The city must be allowed a reasonable opportunity to experiment with solutions to admittedly serious problems”) (internal quotations omitted); Metromedia, Inc. v. City of San Diego, 453 U.S. 490, 509 (1981) (“We likewise hesitate to disagree with the accumulated, common-sense judgments of local lawmakers” especially where “nothing has been advanced which shows that to be palpably false”) (quotation omitted); One World One Family Now v. City and County of Honolulu, 76 F.3d 1009, 1013 (9th Cir. 1996) (recognizing “the deference due the city council’s determinations of necessity”). The district court’s role, as this Court’s, is simply to determine if Portland’s regulation reflects “reasonable inferences based on substantial evidence,” which may be “either empirical support or . . . sound reasoning.” Turner I, 512 U.S. at 666. In this review, “substantiality is to be measured . . . by a standard more deferential than we accord to judgments of an administrative agency.” Turner II, 520 U.S. at 195. Furthermore, evidence and findings are relevant whether presented before adoption of the regulation or after.[36] Portland’s nondiscrimination requirement easily satisfies this standard. Portland’s interest in ensuring vibrant competition in internet markets rests on the well-founded theory that vibrant competition will result in lower prices, attentive service, innovative offerings, and services even for low-margin members of the community. See, e.g., S.E.R. 297-H, 206. Portland knew that access to ISPs had been available on a nondiscriminatory basis since the internet became available to the general public. It knew that internet services had enjoyed tremendous growth and innovation under this approach and competed strenuously with each other to address the many different needs and interests of its citizens. S.E.R. 297‑M. It knew Congress had determined that open, competitive markets were in the public interest and had specifically ensured that telephone access to ISPs -- the only access in existence at the time -- remained available on a nondiscriminatory basis. S.E.R. 297-C, 297-D; 47 U.S.C. § 251(g). And it knew that AT&T intended to provide ISP access on a closed basis that was dramatically faster and capable of handling uses that wholly overwhelm dial-up access. S.E.R. 77. Accordingly, the only question before Portland was whether other forms of highspeed access could reliably be expected to provide its citizens with a real choice of highspeed access to ISPs from their homes if AT&T were permitted to close cable access to ISPs other than through its affiliate. Considerable evidence supports Portland’s conclusion that other access methods were not widely available, are not particularly suited for home use, and are not comparable in terms of speed -- a quality the commissioners experienced first hand and reasonably determined is critical to internet users.[37] Undisputed evidence also established that nondiscriminatory cable modem access is technically feasible. S.E.R. 199, 364, 366, 367, 371.[38] Portland’s conclusion that preserving vibrant competition would serve the public interest is premised on a longstanding consensus with respect to competition generally, and the inherent danger to competition from “tying” arrangements specifically. And its conclusions that nondiscriminatory access would help preserve vibrant competition, whereas closing a dramatically improved access method posed a serious risk, are not only sound but unassailable. AT&T’s challenge is not really a challenge to the sufficiency of this evidence or Portland’s reasoning. Rather, it challenges Portland’s power to act before the internet market is distorted and anticompetitive effects can be determined with certainty. It does not argue that there currently are many other highspeed access providers that offer its subscribers comparable access to the full range of ISPs and other internet-related services at comparable costs, with no significant barriers to switching from AT&T to such competitors. AT&T argues instead that there will probably be other competitive highspeed access providers in the future and they will probably provide access to at least some ISPs who compete with @Home, and AT&T simply assumes that there may not be significant costs associated with switching from cable to a different type of highspeed access provider to reach a different ISP. S.E.R. 259; AT&T Br. at 54. AT&T would prefer that legislators wait until substantial competitive harm has already occurred. That is not, however, the constitutional standard. “A fundamental principle of legislation is that Congress is under no obligation to wait until the entire harm occurs but may act to prevent it.” Turner II, 520 U.S. at 212. A legislature is “allowed to make a rational prediction of the consequences of inaction and of the effects of regulation in furthering governmental interests.” Id. (quotation omitted). That is precisely what Portland did here. It determined to act now because experience had shown that such monopolies are far easier to prevent than to cure. S.E.R. 297-M. In light of the substantial evidence supporting Portland’s decision, much of it supplied by AT&T itself, the longstanding consensus with respect to the dangers of tying arrangements and the value of nondiscriminatory access to the internet, and Portland’s purpose of ensuring “access to a multiplicity of information sources,” Turner II, 520 U.S. at 226 (Breyer, J.), Portland’s nondiscrimination requirement easily satisfies intermediate scrutiny.
AT&T’s challenge to the ordinances under the Commerce Clause also fails. Portland’s efforts to allow all ISPs, whether local or national, to compete on equal footing are fully consistent with the requirements of the Commerce Clause. The ordinances are nondiscriminatory and pose no danger of burdening interstate commerce. Far from meeting its heavy burden of proving the ordinances invalid, see Kleenwell Biohazard Waste & Gen. Ecology Consultants, Inc. v. Nelson, 48 F.3d 391, 398 n.8 (9th Cir. 1995), AT&T has not even raised a colorable claim.
AT&T does not suggest that Portland has in fact discriminated against interstate commerce or out-of-state companies, nor could it. The challenged ordinances allow both in-state and out-of-state ISPs to compete on equal terms. They thus “create no barriers whatsoever against interstate” companies; they “do[] not prohibit the flow of interstate goods, place added costs upon them, or distinguish between in-state and out-of-state companies.” Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 126 (1978). “There is no cause for constitutional concern” where, as here, “local legislation leaves all comers with equal access to the local market” and “in-state and out-of-state [companies] are allowed to compete freely on a level playing field.” Houlton Citizens’ Coalition v. Town of Houlton, 175 F.3d 178, 188 (1st Cir. 1999); see also Haas v. Oregon State Bar, 883 F.2d 1453, 1462 (9th Cir. 1989) (upholding regulation when the state has not “place[d] out-of-state providers at a competitive disadvantage”); Kleenwell, 48 F.3d at 398 (same). AT&T’s constitutional challenge rests primarily on the puzzling assertion that the ordinances, which are indisputably nondiscriminatory, were somehow adopted with an intention to discriminate against interstate commerce and therefore violate the dormant Commerce Clause.[39] That challenge is unsound in theory and unsupported in fact. First, the basic premise is flawed. AT&T cannot be suggesting that @Home is burdened here as an interstate firm. The ordinances treat all interstate ISPs, including @Home, exactly as they treat local ISPs: each has an equal opportunity to provide internet access over cable facilities. See Exxon, 437 U.S. at 126-27 (affirming regulation on this ground). While @Home may lose the anticompetitive advantage it would otherwise enjoy by virtue of AT&T’s monopoly over cable access, Portland’s ordinances deny that anticompetitive advantage to any ISP -- regardless of its status as an interstate or local enterprise. AT&T’s discrimination claim, then, is only that the ordinances regulate its local subsidiaries, which are owned by an interstate enterprise. But even if these local subsidiaries were somehow deemed “interstate” firms,[40] “the fact that the burden of a state regulation falls on some interstate companies” cannot “by itself, establish a claim of discrimination against interstate commerce.” Exxon, 437 U.S. at 126. AT&T improperly conflates discrimination against interstate commerce with a decision to impose obligations on a firm that also happens to do business out of state. But proof of discrimination against interstate commerce requires “a comparison of substantially similar entities.” General Motors Corp. v. Tracy, 519 U.S. 278, 298 (1997); id. at 300 (“in the absence of actual or prospective competition between the supposedly favored and disfavored entities in a single market there can be no local preference . . . to which the dormant Commerce Clause may apply”) (emphasis added). Here, there is no similarly situated in-state company that enjoys an advantage over AT&T. Where, as here, “there are no [similarly situated] local” companies being treated differently than AT&T, any claim of discrimination “between interstate and local commerce [is] meritless.” Exxon, 437 U.S. at 125.[41] As the Supreme Court explained in rejecting a similar claim, even if an interstate company like AT&T “will no longer enjoy [the] same status in the [Oregon] market,” there is no discrimination as long as “in-state [companies that own cable franchises]. . . have no competitive advantage over out-of-state [companies that own cable franchises].” Exxon, 437 U.S. at 126. In short, the “Supreme Court has explicitly rejected” AT&T’s theory of discrimination -- namely, “the notion that any regulation that affects particular companies engaged in interstate commerce necessarily represents an impermissible burden upon it.” Kleenwell, 48 F.3d at 397. AT&T’s discriminatory intent claim fails for the second and independent reason that it is factually incorrect. The ordinances were adopted to facilitate competition among ISPs, not to favor local businesses. The stated purpose of the challenged ordinances is to achieve the “nondiscriminatory treatment” of competing ISPs by offering them equal “access to [the] cable modem platform.” E.R. 78, 79, 97; see also AT&T Corp., 43 F. Supp. 2d at 1150. As Portland explained shortly after passing the challenged ordinances, it “sought to carry out what the MHCRC and its staff sincerely understood to be a broad, federally-encouraged policy of providing for competition, deregulation, and an open and accessible marketplace in communications and Internet Access.” S.E.R. 297-C.[42] The record confirms that the commissioners were concerned that AT&T’s stranglehold over cable access would effectively limit consumer choice because all of @Home’s competitors, not just local ones, would be placed at a severe competitive disadvantage.[43] Indeed, none of the commissioners could have believed the open access requirement would favor in-state interests because all were repeatedly informed that the ordinances granted access to both in-state and out-of-state ISPs, including large national providers well-equipped to compete against small local companies in Portland.[44] To the extent any commissioners suggested that local businesses might benefit from the ordinances, that was mentioned only as a potential side effect of the competition Portland sought to create for consumers’ benefit. Indeed, Commissioner Harshman made clear that the ordinances were intended to promote the public interest, not to benefit local ISPs: “We have to take care of our citizens. We are not here to guarantee the life of internet providers. They are not our constituents. They will live and die in a very competitive atmosphere.” S.E.R. 207 (emphasis added). The ordinances themselves offer further proof that AT&T has misstated Portland’s motives. Portland’s regulation is fully consistent with its stated purpose: it grants all ISPs, including out-of-state companies, an equal opportunity to compete for Portland customers. AT&T’s characterization of Portland’s motives as improperly favoring local companies cannot be squared with the ordinances themselves. Offering access to all local and interstate ISPs -- including large, national providers -- cannot have been intended to favor local interests. In attributing a different motive to Portland, AT&T attempts to find discriminatory intent in citizen testimony, an out-of-context quotation, and a reference to the local benefits that would be derived from Portland’s neutral regulation.[45] These efforts are unavailing. Citizen testimony does not indicate the decisionmakers’ purposes, and references by the decisionmakers to local benefits do not establish illicit purpose. As the Supreme Court has explained in rejecting a similar argument, courts “will not invalidate a state statute” as discriminatory “merely because some legislators sought to obtain votes for the measure on the basis of its beneficial side effects on a state industry.” Clover Leaf Creamery Co., 449 U.S. at 463 n.7. Indeed, “[n]o one disputes that a State may enact laws . . . that have the purpose and effect of encouraging domestic industry,” so long as those laws do not discriminate against interstate commerce. Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 271 (1984). Thus, even if some of Portland’s commissioners believed that opening the market to all in-state and out-of-state ISPs would ultimately benefit some in-state companies, their actions are nonetheless fully consistent with the Commerce Clause. Id.
AT&T argues in the alternative that the ordinances violate the dormant Commerce Clause because they subject AT&T to different regulations in different communities and thus unduly burden interstate commerce under the Pike balancing test. See Pike v. Bruce Church, Inc., 397 U.S. 137 (1970). Although AT&T vaguely invokes the threat of conflicting local regimes or “balkanization,” nowhere in its 61-page brief can it identify a single specific example of a conflict that could develop from Portland’s nondiscriminatory access requirement. See Huron Portland Cement Co. v. City of Detroit, 362 U.S. 440, 448 (1960) (rejecting claim that state regulation would unduly burden state commerce when plaintiff could point to nothing in record “to suggest the existence of any competing or conflicting local regulations”).[46] Nor did AT&T offer any such example to the district court or to the Portland commissioners. That is unsurprising. As the district court found, the reach of Portland’s requirement is confined entirely to AT&T’s facilities in Portland. AT&T Corp., 43 F. Supp. 2d at 1154. Unlike the regulations challenged in Healy v. Beer Institute, 491 U.S. 324 (1989), the ordinances do not “ha[ve] the . . . effect of controlling commercial activity occurring” outside of Portland or subject AT&T to “inconsistent legislation” that would preclude it from conducting business elsewhere. 491 U.S. at 337-38. AT&T hints only that some difficulty might be presented by some communities requiring nondiscriminatory access and others not requiring it. All that would mean is that AT&T’s subsidiaries would maintain differently configured facilities in different communities. But AT&T’s subsidiaries necessarily already do so. No cable network is identical; each must be adapted to local conditions, including geography, the location of rights-of-way, and population densities. The minor adjustments required here affect AT&T’s ability to engage in interstate commerce no more than the diversity of conditions in the communities in which its subsidiaries operate, or the diversity of local regulations and franchise provisions applicable to its subsidiaries -- such as pole use restrictions, franchise fees, service quality requirements, and book-keeping requirements. These are precisely the types of burdens Congress contemplated that states would impose under the dual regulatory scheme it created. See Storer Cable Communications v. City of Montgomery, 806 F. Supp. 1518, 1554 (M.D. Ala. 1992) (court should not “second-guess Congress’s determination as to which aspects of cable television are amenable to local control and which are not”). Indeed, such varying, but not conflicting, “burdens” are always imposed on interstate firms doing business in different states and localities, without raising any dormant Commerce Clause concern. Interstate businesses must abide by different zoning laws in each jurisdiction, varying state tax laws, environmental laws, reporting requirements, and more. If, as AT&T claims, interstate commerce were “burdened” merely because a company owning franchises in several states cannot construct and administer identical facilities in every locality, then no state or locality could exercise its sovereign power with respect to any regional or national company because “virtually any regulation of local markets . . . would violate the Commerce Clause.” Kleenwell, 48 F.3d at 396. Precisely for these reasons, the Supreme Court has repeatedly held that “[t]he cost of adjusting an interstate operation to” local regulations does not “unduly burden[] interstate commerce.” Bibb v. Navajo Freight Lines, Inc., 359 U.S. 520, 526 (1959); see also Exxon, 437 U.S. at 128 (rejecting an argument that the “cumulative effect” of state regulations on “national market operations” unduly burdens interstate commerce). It is only when the “lack of national uniformity would impede the flow of interstate goods” across state lines that the Commerce Clause is implicated. Exxon, 437 U.S. at 128 (emphasis added); see also Bibb, 359 U.S. at 526. In Bibb, for example, the Supreme Court struck down Illinois’ requirement that trucks use special mudguards that differed from those required in other states. This requirement violated the Commerce Clause because a truck traveling from one state to another would have to go to great lengths to switch mudguards every time it crossed a state border. Bibb, 359 U.S. at 526-27, 530-31. Here, in contrast, AT&T need not modify its facilities in any way to transport messages and signals across state lines; it need only make minor adjustments in facilities located entirely in Portland, and these adjustments will not affect its commercial activities outside the state.[47] Furthermore, even if the challenged regulations indirectly burdened interstate commerce, which they do not, those burdens are not “‘clearly excessive’” when compared to Portland’s local objectives. Haas, 883 F.2d at 1462 (internal citations omitted). It is well established that states may “make laws governing matters of local concern which nevertheless in some measure affect interstate commerce or even, to some extent, regulate it.” Southern Pac. Co. v. Arizona, ex rel. Sullivan, 325 U.S. 761, 767 (1945). Thus, under Pike, this Court should scrutinize legislation that “regulates evenhandedly but incidentally burdens interstate transactions” only to discern whether “‘the burdens [it] impose[s] on interstate trade are ‘clearly excessive in relation to the putative local benefits.’” Haas, 883 F.2d at 1462 (internal citations omitted). Portland unquestionably has a “legitimate interest in addressing the failures of an unregulated market.’” Kleenwell, 48 F.3d at 400 (internal quotations omitted). And while AT&T would have this Court second-guess Portland’s determination that regulations preventing monopoly control of highspeed internet access facilities benefit local consumers, see AT&T Br. at 59, “in the context of dormant commerce clause analysis, the Supreme Court has frequently admonished that courts should not ‘second-guess the empirical judgments of lawmakers concerning the utility of legislation.’” Pacific Northwest Venison Producers v. Smitch, 20 F.3d 1008, 1017 (9th Cir. 1994) (internal citations omitted). Even if it were appropriate for this Court to second-guess Portland’s judgments, those judgments are plainly reasonable. The ordinances easily satisfy the Pike balancing test. Thus, AT&T’s arguments that the ordinances violate the Commerce Clause are incorrect as a matter of law and unsupported by the record in this case. Its claims should accordingly be rejected. For the reasons set forth above, the district court’s decision should be affirmed. Respectfully submitted,
CERTIFICATION I hereby certify that this brief complies with F.R.A.P. Rule 32(a)(7)(B), and contains 13,383 words.
STATEMENT OF RELATED CASES Pursuant to Rule 28-2.6 of the Ninth Circuit Rules, ORISPA is unaware of any related cases pending in this Court. [1] Appellants’ preemption challenges are being addressed by other appellee-intervenors. ORISPA agrees with those appellee-intervenors and with the FCC that the Court can, and should, resolve those challenges without addressing whether cable modem services should be regulated as cable, telecommunications, or information services, and should leave to another day whether Portland’s carefully circumscribed ordinances would be preempted if, in the future, the FCC takes regulatory actions inconsistent with them. [2] S.E.R. refers to the Supplemental Excerpts of Record, filed today by Appellees City of Portland and Multnomah County. [3] The MHCRC was created by Intergovernmental Agreement in 1992 to carry out cable regulation and administration for the County of Multnomah and various cities, including Portland. Like a congressional committee, the MHCRC was created by the legislative bodies it advises. It may receive written submissions, take testimony, and direct its staff to investigate and consider issues. Like a congressional committee, it lacks legislative power, but recommends actions to the legislative bodies that created it. [4] Subsequently, AT&T has proposed to merge with the third largest cable operator, Media One. If approved, AT&T would hold interests in cable systems serving more than half the nation’s cable homes. <wysiwyg://53/http://cnnfn.com/1999/05/06/technology/att/> (visited Aug. 26, 1999). [5] Reno v. ACLU, 521 U.S. 844, 853 (1997); see AT&T Br. at 57. [6] Turner I also rejected the argument, echoed by AT&T here in such phrases as favored and disfavored speakers, that regulations distinguishing between speakers warrant strict scrutiny. Id. at 657. The Supreme Court explained that “speaker-based laws demand strict scrutiny when they reflect the Government’s preference for the substance of what the favored speakers have to say (or aversion to what the disfavored speakers have to say).” Id. at 658. Portland has not even distinguished between identifiable speakers, much less done so on the basis of what they say. Portland simply required all speakers to be treated equally. See Time Warner Entertainment Co. v. FCC, 93 F.3d 957, 969 (D.C. Cir. 1996) (requirement that cable operators lease time to others is not content based because “[t]heir qualification to lease time on those channels depends not on the content of their speech, but on their lack of affiliation with the operator, a distinguishing characteristic stemming from considerations relating to the structure of cable television.”). [7] References to Appellants’ Excerpts of the Record are cited as “E.R.” [8] Contrary to AT&T’s mischaracterization, AT&T Br. at 50, the district court’s discussion was not undertaken as a preliminary determination of the appropriate standard of review, but a review of the First Amendment claim AT&T presented. AT&T Br. at 50. Having rejected AT&T’s compelled speech claim, the district court also considered whether the ordinances are valid if, on some other First Amendment theory, they might be subject to intermediate scrutiny. The court found, correctly, that the ordinances also meet that constitutional standard. AT&T Corp., 43 F.Supp. 2d at 1153-54. [9] Turner I also found Tornillo inapplicable because the Court recognized an important technological difference between newspapers and cable that enables cable to act as a bottleneck controlling the information available to subscribers, absent government action. Id. at 656. That distinction also governs here. [10] 19 Communications Daily at 1 (Aug. 12, 1999) (quoting Hybrid Networks Vice President and Chief Technical Officer Frederick Enns). [11] Supra note 10. [12] Similarly, the shared nature of the cable system exposes internet users to potentially degraded services caused by malfunctioning modems, but again, this is unrelated to the number of ISPs. S.E.R. 369. [13] Moreover, AT&T itself has declared that nondiscriminatory access for multiple ISPs presents no bandwidth or other capacity problems. “There is no capacity issue,” according to AT&T spokesman Mark Siegel. “The modems are traffic engineerable to accommodate any user demand that you’re forecasting.” Reinhardt Krause, AT&T Working to Eliminate Glitches in Cable Net Access, Investor’s Business Daily, July 13, 1999, at A4. [14] See 47 U.S.C. § 251(g); In re Amendment of Section 64.702 of the Commission’s Rules and Regulations, 77 F.C.C. 2d 384 (1980); In re Third Computer Inquiry, 2 F.C.C.R. 3072 (1987). AT&T’s suggestion that the FCC has officially reversed its policy seriously overstates the case. The FCC has determined only to “wait and see” whether to mandate open cable modem access, but meanwhile to “monitor broadband deployment closely.” See In re Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorization from TeleCommunications, Inc., Transferor to AT&T Corp., 14 F.C.C.R. 3160, ¶ 96 (1999) (“Transfer Order”). In that proceeding, AT&T adamantly maintained that the FCC lacked authority to mandate nondiscriminatory access, just as it argues here that local authorities lack the power to mandate nondiscriminatory access. Id. ¶ 82. In any event, different regulatory authorities may reach differing, but constitutionally valid, conclusions with respect to the best method to ensure competition. See Turner II, 520 U.S. at 211 (“the possibility of drawing two inconsistent conclusions from the evidence does not prevent a finding from being supported by substantial evidence”) (quotation omitted). [15] See, e.g., 19 Communications Daily at 1 (quoting industry expert that cable-compatible methods allow multiple ISPs on cable systems without affecting capacity); <http://www.gte.com/AboutGTE/NewsCenter/ News/Releases/ClearwaterOpenAccess.html> (visited Aug. 30, 1999) (providing results of successful in-the-field test of multiple ISP cable access). [16] They would be able to cache close to customers, and they would avoid the potential quality and delay problems caused by AT&T’s plan -- which routes traffic between unaffiliated ISPs and their customers through @Home over the internet. [17] With dial-up access, data travel at a maximum of 56 Kbps (kilobits per second), but more typically about half that. With cable modem access, data can be downloaded at a rate of 10 to 30 Mbps (megabits per second). S.E.R. 358. Thus, information that takes 9 to 17 minutes to download with a dial-up modem can be downloaded in 1 to 3 seconds through cable. [18] Independent economists agree. See Berkeley Roundtable on the International Economy, Defending the Internet Revolution in the Broadband Era: Why Open Policy Has Been Essential, Why Reversing That Policy Will Be Risky, E-conomy Working Paper 4 (visited Aug. 27, 1999), <http://e-conomy/berkeley.edu/pubs/wp/ewp12/html> (“BRIE”) (cable modems will be dominant highspeed source of access for residential customers for “the next five years”); The Motley Fool’s Internet Report at 18, July 13, 1999 <http://www.foolmart.com> (visited Sept. 1, 1999) (same). [19] DSL data speeds vary between 256 Kbps and 1.5Mbps. S.E.R. 358. [20] See also Susan Breidenbach, Can’t Get Enough DSL, Network World, Nov. 16, 1998, at 55 (only 50-60 percent of currently deployed copper telephone wires will support DSL); BRIE at 12 (same); John G. Nellist and Elliott M. Gilbert, Understanding Modern Telecommunications and the Information Superhighway 136-38, 146-47 (1999) (DSL has distance limitations that cable does not). [21] See Overview of Wireless Cable Modem Technology and Services, Cable Datacom News <http://www.cabledatacomnews.com/wireless/cmic10.html> (visited July 28, 1999); BRIE at 12. [22] Cf. BRIE at 12, 17 (cable’s lead in highspeed access market gives it a potentially enduring advantage). [23] See BRIE at 13 (it would cost up to $600 to switch from cable to DSL, including installation, inside wiring, special modem, and setup fees). [24] Another effect of AT&T’s requirement that subscribers pay twice to reach the ISP of their choice and reach it only through the internet from AT&T’s affiliate would be dramatically to reduce competition in the internet backbone services market. Internet backbone services carry data packets between an ISP and other internet destinations. @Home and AT&T provide @Home’s backbone services. @Home Br. at 11. Backbone services are currently highly competitive, and providers carry each others’ traffic without charge. Permitting AT&T to parlay its cable access monopoly into a significantly increased role in the backbone services market both decreases the ability of other backbone companies to compete and risks placing AT&T in a position to impose fees for carrying their internet traffic. [25] BRIE at 3. [26] BRIE at 22. [27] See BRIE at 21-25;
<http://www.consumersunion.org/other/0729coaldc799. [28] @Home Corporation 1998 Annual Report (Feb. 29, 1999); BRIE at 23. [29] See @Home Acceptable Use
Policy <http://www.home.com/support/aup>;
@Home User Guide <http://www.home.com/support/netscape>; [30] Such an investment is also consistent with other business development plans in the cable industry which, having penetrated its potential market with the basic cable wire, now focuses growth plans on premium services. Cable access is another premium service operators can offer -- with considerable market appeal. [31] See 19 Communications Daily at 2 (Aug. 12, 1999); @Home Corp., SEC Form 10-Q at 23 <http://www.sec.gov/Archives/edgar/data/1020620/0001012870-98-002946.txt> (visited Nov. 16, 1998); Deborah Jesop, Rogers, Microsoft To Deploy Broadband Services in Canada, Internet News (July 13, 1999) <http://www.internetnews.com/intl-news/article/0,1087,archive_6_160581,00.html>; @Home Second Quarter 1999 Earnings Report, <http://www.home.net/news/pr_990720_01.html> (visited Aug. 29, 1999). [32] <http://www.askmerrill.com/prod/files/pdf/2790930.pdf> (visited Aug. 19, 1999). [33] @Home’s further claim that AT&T needs its “exclusive” arrangement with @Home because their interrelationship permits @Home to develop content especially suited to cable’s lightning speed, which AT&T allegedly needs to attract subscribers to cable access, @Home Br. at 18 & 24, is not only unsupported, it is contradicted by the judgment of competing ISPs, which believe the rush to cable’s highspeed connections will leave them in the dust absent nondiscriminatory access, and by the judgment of Portland’s commissioners, who experienced the highspeed connection for themselves. If @Home’s special content were the appeal, rather than the sheer unmatched speed of the connection, AT&T’s subscribers would choose @Home on the merits, and neither would have anything to fear from an open market. [34] See, e.g., Burson v. Freeman, 504 U.S. 191, 206, 211 (1992) (upholding campaign-free zone around polling places, even under strict scrutiny, despite absence of concrete proof of voter intimidation, because history and “simple common sense” indicated a “widespread and time-tested consensus” that such laws are necessary); City of Renton v. Playtime Theaters, Inc., 475 U.S. 41, 50-52 (1986) (upholding zoning ordinance under intermediate scrutiny based on limited evidence from a different jurisdiction that chose a different regulatory solution, because the city was not required to meet a “rigid burden of proof”); Actmedia, Inc. v. Stroh, 830 F.2d 957 (9th Cir. 1986) (advertising restriction upheld in light of its similarity to history of statutes aimed at related concerns). [35] AT&T’s reliance on Turner I to support its position is unavailing. There was a factual dispute in Turner as to whether cable operators would refuse to carry significant numbers of broadcast stations absent the regulation. Cable operators argued that they would not refuse, and Turner I found the record unclear whether there was a sufficient basis reasonably to conclude that assertion was incorrect. Turner II, 520 U.S. at 193. There is no such dispute here. AT&T told Portland in unambiguous terms that it would not permit any subscriber to connect directly to any ISP other than @Home. S.E.R. 77. [36] See Turner II, 520 U.S. at 200; Rubin v. Coors Brewing Co., 514 U.S. 476, 487-88 (1995); Ben Rich Trading, Inc. v. City of Vineland, 126 F.3d 155 (3d Cir. 1997). Thus, MHCRC’s detailed explanation, issued a month and a half after its recommendation, and Portland’s submissions to the district court, add further support to a record already sufficient to support Portland’s regulatory choice. [37] S.E.R. 297-L; 356-59; 168. Moreover, @Home agrees with Portland’s assessment, advertising on its web site that cable access is so much better than dial-up that “[t]here is no comparison.” <http://www.home.com/speed.html> (visited Aug. 29, 1999) (emphasis added). [38] AT&T’s assertion that Portland did not determine whether nondiscriminatory access was feasible, AT&T Br. at 56, is wrong as fact, see S.E.R. 220, and particularly hollow in light of AT&T’s inability to submit any evidence whatsoever that nondiscriminatory access was not technically feasible. Portland reasonably concluded from uncontradicted testimony that nondiscriminatory access is technically feasible. Similarly, Portland was not obliged to consider whether nondiscriminatory access would degrade AT&T’s cable service or force it to drop existing programming when AT&T itself did not claim it would, much less offer evidence to that effect -- and does not so claim here. AT&T Br. at 56; see also supra pp. 23-24. [39] AT&T did not even raise this claim in the proceedings below, but confined its Commerce Clause challenge to the second argument it makes here. See II.B./p> [40] In General Motors Corp. v. Tracy, 519 U.S. 278, 288 (1997), the Supreme Court unhesitatingly accepted the view that local utilities were “in-state . . . entities” without inquiring into their parent companies’ geographical market. [41] The two plaintiffs, TCI-Oregon and TCI-Washington, offer an appropriate basis for comparison here since each owns a franchise affected by the ordinances. The fact that both the Oregon corporation and the out-of-state company are challenging the ordinances on the same grounds makes clear that Portland has treated in-state and out-of-state firms equally. See E.R. 3. [42] Portland’s statement of its intentions alone requires rejection of AT&T’s challenge. Intent claims under the Commerce Clause are addressed under the same, highly deferential standard used to review equal protection challenges to economic legislation. See Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 463 n.15 (1981). Thus, this Court must assume that “objectives articulated by the legislature are actual purposes of the statute” unless the facts reveal that they “‘could not have been a goal of the legislature.’” Id. at 463 n.7. [43] See AT&T Corp., 43 F. Supp. 2d at 1150 (ordinances adopted for benefit of consumers); S.E.R. 97 (Commissioner Saunders expressing fear that ISPs would be “squeezed out of the market” by @Home); S.E.R. 98 (staff counsel expressing concern of consumers that the merger of “two giant companies might . . . drive out smaller companies and stifle competition”); S.E.R. 163 (Commissioner Diciple-Wedding arguing that it is in the public’s interest to have open access); S.E.R. 256 (Commissioner Diciple-Wedding noting that it hurts consumers to have one internet provider); S.E.R. 221 (Chairperson Thomas emphasizing the public’s interest in “full competition” including consumer “access to lots of different Internet providers”). [44] See, e.g., S.E.R. 200 (testimony that “diversity of competition always drives the price down” and “innovators and the local industries throughout the nation would provide a lower price point than a monopolistic entity”) (emphasis added); S.E.R. 201 (US West request for access for “all competitors and internet service providers”) (emphasis added); S.E.R. 227 (testimony by local ISP group that “national providers” are “by our side” and “have a lot to lose as well”) (emphasis added); S.E.R. 266 (noting that national providers like AOL would benefit from ordinances). [45] Two of AT&T’s four citations to the record are to hearing testimony presented to Portland on behalf of local ISPs. See AT&T Br. at 58. While such testimony reveals evidence before Portland when the ordinances were enacted, it is a poor gauge of Portland’s motives in enacting them. See Kelly v. Robinson, 479 U.S. 36, 51 n.13 (1986); United States v. Standard Oil Co., 618 F.2d 511, 516 (9th Cir. 1980). AT&T’s remaining citations are to passing statements of two of the decisionmakers, which lend no support to AT&T’s assertions. The statement by Commissioner Kelly merely urges AT&T to pay attention to the views of local policymakers on cable issues; it says nothing about Portland’s intentions regarding local ISPs. See E.R. 111. Similarly, Commissioner Sten notes that delaying action on open access, as AT&T had requested, might destroy any opportunity for competition in the short term by driving competitors, including local ISPs, out of business. E.R. 131. [46] Moreover, the question “[w]hether the burden is ‘clearly excessive’ depends on ‘the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities.’” Haas, 883 F.2d at 1462 (quoting Pike, 397 U.S. at 142). Here, AT&T has offered no other less restrictive means for achieving Portland’s substantial interests; it has simply demanded that it be able to maintain its monopoly. Its argument should accordingly be rejected. See Clover Leaf Creamery Co., 449 U.S. at 473. [47] Moreover, even those modifications are minimal. See S.E.R. 366 (“The cable network infrastructure, as it is currently configured, is essentially already capable of handling multiple ISPs. Virtually no changes would need to be made to the network infrastructure itself”); S.E.R. 199-200. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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